The Ethereum Merge Explained

The PoW/PoS Merge is one of the biggest events in the history of the Ethereum network and is anticipated to occur on or around September 19, 2022.  The Merge is the official transition of the Ethereum network from the Proof of Work to the Proof of Stake consensus algorithms.

Proof of Work vs Proof of Stake

Blockchains use consensus algorithms to determine the official version of each block and keep the decentralized network in sync.  The Ethereum network launched using the Proof of Work consensus algorithm that was originally defined in the Bitcoin whitepaper.  In a Proof of Work blockchain, miners compete to be the first to find a valid version of the next block, a process that requires guessing and checking many potential block header values.

Proof of Work consensus is good for security, but it also has its downsides.  Among these are the fact that it has limited scalability and that protecting the blockchain against attack requires the use of significant computational resources.  The energy consumption of networks like Bitcoin has long been one of the most common criticisms of blockchain technology.

Proof of Stake is an alternative to Proof of Work in which ownership of the blockchain’s native cryptocurrency is used to select the next block creator and secure the blockchain.  In a Proof of Stake system, the probability that a validator will be selected to create the next block is roughly proportional to the percentage of staked cryptocurrency that they control.  Since buying up all of a blockchain’s cryptocurrency would be economically infeasible for most users, the blockchain remains decentralized.

When Will the Ethereum Merge Happen?

The Merge is Ethereum’s official transition from a Proof of Work to a Proof of Stake consensus algorithm and has a soft deadline of September 19, 2022.  However, the Ethereum network has been preparing for this transition for some time now using the Beacon Chain.

The Beacon Chain is a Proof of Stake consensus layer that has been running in parallel to the main Proof of Work Ethereum network since December 1, 2020.  To date, the Beacon Chain hasn’t been used to record official transactions on the Ethereum ledger.  Instead, it has been used solely to maintain consensus on its own state, including the set of active validators and the amount of staked cryptocurrency that they hold.  

This parallel implementation has enabled the Beacon Chain to undergo extensive live testing and to build up a healthy population of validators before being entrusted with the security of the Ethereum blockchain.

When the Merge occurs, the Beacon Chain will take over responsibility for maintaining consensus on the Ethereum blockchain.  At this point, the Proof of Work consensus algorithm will be completely phased out, making it possible for Ethereum to pursue additional goals on its roadmap, such as sharding.

Potential Forking at the Merge

The Merge and the transition from Proof of Work to Proof of Stake have been a part of the Ethereum roadmap from the very beginning. 

Ethereum has a built-in “difficulty bomb” which is intended to make Proof of Work mining harder and harder to encourage nodes to switch over from the Proof of Work to Proof of Stake blockchain.  

While this difficulty bomb has been frozen several times to allow additional time for the development of the Proof of Stake consensus layer, the time of the Merge has finally come.

However, not all Ethereum users are excited about the changing rules of the Ethereum blockchain.  Those nodes that have invested heavily in mining equipment for Ethereum’s Proof of Work consensus algorithm will have that equipment become obsolete after the merge.  One of the main selling points of Proof of Stake is that it lacks the high computational requirements of Proof of Work.

After the Merge, some Ethereum miners may turn their equipment to mining cryptocurrency on other blockchains that still rely on Proof of Work consensus (such as Bitcoin).  However, others may choose to reject the merge and create their own fork of the Ethereum blockchain that continues to use Proof of Work as its consensus algorithm.

Ethereum forks have occurred in the past, such as the creation of Ethereum Classic in protest of the response to the DAO hack.  However, the Proof of Stake version of Ethereum will remain the official — and likely more valuable — version of the blockchain.

Preparing for the Ethereum Merge

Ethereum’s POW/POS Merge is intended to be a seamless transition from Proof of Work to Proof of Stake.  The Ethereum network should experience no downtime, and most users will not need to do anything to prepare for the Merge.